EARNINGS Major strides in transition to mobile - but shares slide on increase in expenses

Published 10:37 pm, Wednesday, January 30, 2013

Facebook CEO Mark Zuckerberg on the jump in mobile users: "Today, there's no argument, Facebook is a mobile company."

Facebook CEO Mark Zuckerberg on the jump in mobile users: "Today, there's no argument, Facebook is a mobile company."

Photo: Jeff Chiu, Associated Press

Facebook earnings up, but stock slides

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Facebook Wednesday tried to give investors the message they wanted to hear - that the social networking company is moving quickly to capture revenue from a user base that is rapidly moving away from desktops and onto smartphones and tablets.

Yet the company's stock price dropped in after-hours trading as investors apparently focused on the Menlo Park company's 82 percent increase in expenses and 79 percent drop in net income compared with the same quarter last year.

Facebook's fourth-quarter earnings generally beat Wall Street estimates, with net income of $64 million on revenue of $1.585 billion. That compared with $302 million in net income for the fourth quarter of 2011. Revenue increased by 40 percent from $1.13 billion.

For the full year, net income was $53 million on revenue of $5.09 billion That compared with $1 billion in net income on revenue of $3.7 billion in 2011, although this year, Facebook had to account for one-time costs such as those related to going public.

Mobile users soar

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About 84 percent of fourth-quarter revenue came from advertising. During a conference call with analysts, Facebook executives continually stressed the company's efforts in addressing the biggest trend during the entire year - the number of Facebook's 1.06 billion monthly active users who jumped on the social network from mobile devices increased by 57 percent to 680 million.

The proportion of advertising revenue from mobile devices went from zero percent at the start of 2012 to 23 percent by the fourth quarter, Facebook reported. Chief Executive Officer Mark Zuckerberg credited the still-experimental rollout of sponsored messages that appear within the news feeds on mobile devices.

"Today, there's no argument, Facebook is a mobile company," Zuckerberg said during a conference call with financial analysts. "The next thing we're going to do is get really good at building new mobile-first experiences."

Facebook stock, which has reached higher ground since the start of the year after wallowing for months after the company's IPO, closed at $31.24 per share, up 1.46 percent, on the Nasdaq exchange.

Stock slumps on news

But the earnings report's release after the market closed triggered a price drop, with the stock sliding by about 4 percent to below $30 per share.

Estimize, a New York stock analysis firm, said a survey of 87 buy- and sell-side financial analysts, hedge fund managers and asset management firms had estimated Facebook revenues at $1.535 billion, short of its actual performance.

"They really stepped on the gas this quarter on the monetization side," said Estimize Chief Executive Officer Leigh Drogen. "A lot of the analysts on Estimize were looking to see if they'd mortgage some of their future to hit some really big numbers this quarter, and that has yet to be seen."

Company executives said the trends they are seeing in ad revenues, which account for 84 percent of Facebook's overall revenues, were encouraging, but that there was room to grow. The company is still experimenting, for example, to find the right mix of sponsored ads displayed on the mobile news feed. Zuckerberg said users are reacting well to the introduction to those ads.

And the company is still refining products that better target ads to individual members.

'Confident' in ad trend

There are other trends, such as the near doubling of the number of local business pages during the year as advertisers use a program to directly buy promoted posts, said Chief Operating Officer Sheryl Sandberg.

"As we look ahead toward 2013, we are very confident in the direction of our ad business," Sandberg said.

Photos remained a mainstay of Facebook, with more than 600 million uploaded on New Year's Day alone, Zuckerberg said. Usage of the company's Instagram app continued to grow, but Zuckerberg said he did not have any new numbers to offer.

But Facebook's costs are rising, too, as the company hires more employees, adds to its data-handling infrastructure and rolls out new products, such as Graph Search, which was introduced this month.

Zuckerberg said the company not "moving to optimize profits this year," but instead trying to look to the future and invest in "things we feel are right for our business to invest in aggressively."

'More disciplined'

Brian Blau, a research director for research firm Gartner, said Facebook had "fairly decent results this quarter," indicating that the company is "managing the business in a different way than before the IPO, when they were more like a startup. I think they're getting a bit more disciplined these days."

But he said one area of concern was the $256 million the company earned in the fourth quarter from payments through apps such as social games, revenue that was essentially flat compared with the same quarter last year.

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"That's an indication of the overall transition from desktop to mobile," he said.